Discuss the tools of the Federal Reserve and explain how each can be used to change the money supply and equilibrium interest rate
What will be an ideal response?
The Fed has three tools: discount rate, open market operations, and the reserve ratio. An open market sale or purchase will cause a change in H and M. This will in turn cause a change in the money supply. A change in the required reserve ratio will cause a change in the money multiplier and, therefore, the money supply. When the money supply changes, the interest rate will change. Changes in the discount rate do not directly cause changes in the money supply.
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The social interest theory of regulation suggests that the political process and regulations will ________ and the capture theory of regulation suggests that the political process and regulations will ________
A) seek to minimize deadweight loss; serve the interests of the producers B) try to maximize the producers' economic profits; seek to minimize deadweight loss C) be unaffected by deadweight loss; increase the firms economic profits D) ignore producers' interests and concentrate on consumers' interests; seek to minimize firms' economic profits
How do the following affect the equilibrium price in a market?
a. A leftward shift in demand b. A rightward shift in supply c. A large rightward shift in demand and a small rightward shift in supply d. A large leftward shift in supply and a small leftward shift in demand
Consider the following two situations. Irene accepts a job where she will be driving in dangerous traffic, so she seeks auto insurance. After Victor buys health insurance, he visits the gym less frequently. Which of these person's actions illustrates moral hazard?
a. both Irene's and Victor's b. Irene's but not Victor's c. Victor's but not Irene's d. neither Victor's nor Irene's
Which of the following would cause an outward shift of aggregate demand?
a) an increase in interest rates b) an increase in tax rates c) the expectation of higher income d) improvements in technology e) an increase in imports